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Signs of panic can be found in the Department of Trace Commerce and Industry’s defense of the PMIZ of late. First, the bungled Summons against it public critics, which eventuated in Human Rights cases being lodged against the Department. Now rumours of rogue state behavior being expressed by Minister Richard Maru as he shops the project in Europe. Fellow-PNG Pacific Island countries have failed to sign up for the industrial zone despite terms favorable enough to be considered unfavorable to the host country. And now, despite professed loyalty to the PNA and the region, Maru is now shopping the boondoggle to European canneries, thereby jeopardizing everything the Partners of the Nauru Agreement stand for in the first place. Now we learn that Maru would risk all Pacific trade relationships to stand alone in the Interim EPA that exists between PNG and the European Union, rather than move toward a collective and comprehensive EPA alongside its regional neighbours.That’s a big F U to the other Partners of the Nauru Agreement and other Pacific Island States.If this is the extent to which Maru is willing to go, we only have to ask what he personally has at stake.Where is the money from the Exim Bank loan? How has it been acquitted? What accounting has been done on this US$95 million loan? Where is the investment to date?

We may be witnessing the desperate stratagems of a marked man. Will he barricade himself inside a Gold Coast mansion (purchased perhaps in a wife’s name, or that of a holding company with a perfunctory name)? Will he turn ‘State’s evidence’ against fellow PMIZ campaigners like Gabriel Kapris and Sylvester Pokajam, in an effort to save himself?

A couple of weeks ago, observers were prepared to find all manner of media slander against the 11 Defendants in the gagging order initiated by the Department of Trace, Commerce and Industry. But despite noises about sinister NGOs and anti-development conspirators, little has emerged to destabilize their credibility.

Now we enter a fugue state where Minister Maru is literally capable of saying anything to save his skin.

Minister Maru enjoys the view from his personal plot in the Pacific Marine Industrial Zone

Papua New Guinea has officially withdrawn from being a part of a Pacific island bloc to negotiate a comprehensive Economic Partnership Agreement with the European Union.

Instead, PNG will continue trade discussions with the EU under the Interim EPA that it currently has.

Trade Minister, Richard Maru, made this announcement today saying this is done to safeguard PNG’s current trade arrangements with the EU and to further strengthen this relationship.

This announcement follows an intensive trip to Europe which started off in London with the UK-PNG Trade Investment Forum.

According to Maru, PNG is on a path to be on the EU’s good side and make PNG’s presence known in the European markets.

The strongest message PNG made was to announce in no uncertain terms that it is no longer interested in negotiating a comprehensive EPA.

“Papua New Guinea withdraws from all EPA negotiations, will not be part of any Pacific islands trade negotiating team, we will not attend any meetings as of today,” he said. Maru says this is to protect PNGs interest, most notably the K95 million PMIZ project in Madang. He said PMIZ is only “feasibly and viable ” because of PNG’s Interim EPA with the EU and PNG is not about to jeopardize that.

“In our talks we told the EU that, of the 10 canneries in Madang, 5 will be given to European companies.”

The discussions towards a more comprehensive EPA between the EU and 14 other Pacific Island countries have dragged on for 12 years.

In 2007, while the comprehensive EPA was still being negotiated, Fiji and PNG signed Interim EPA’s with the EU.

While this decision will affect other smaller pacific island countries, Director General for Trade, Ambassador Max Rai says the decision has been made.

“The (PNG) government has taken a stand now and we hope the message ripples right across the Pacific, that this (comprehensive EPA) will be a really wasteful effort. ”

Ambassador Rai said, they hope a comprehensive EPA with the EU will not be part of the agenda in the upcoming Pacific Islands Leaders Forum that will be in Port Moresby.

The other leg of the European tour was spent in Geneva, Poland and Brussels where talks were held with various prospective companies where discussions around downsteam processing were discussed.

The delegation was also on the lookout for companies in the field of telecommunication, shipping, banking and arilines to “drive the cost of business down” Minister Maru said.

A crooked Chinese company based in PNG is reaching out to the Solomon Islands government in search of new contracts. The General Manager of China Harbour Engineering Company recently met with the Solomon Islands Prime Minister, Manasseh Sogavare – see news report below.

Mr Sogavara, who described China Harbour Engineering as a ‘reputable’ company and ‘genuine investor’, seems unaware the firm has been blacklisted by the World Bank for fraud and condemned by the courts in Bangladesh and the government in Jamaica.

In case Mr Sogavara has not been properly briefed, here is a ‘greatest hits’ list that highlights China Harbour Engineering’s disconcerting record:

China Harbour Engineering Company’s parent company, and all its subsidiaries (including its PNG subsidiaries), have been blacklisted until 12/1/2017 by the World Bank for all contracts related to roads and bridges, owing to “fraudulent practices” (Source: World Bank 2011).

The courts in Bangladesh found that China Harbour Engineering Company paid bribes to the son of the Bangladeshi Prime Minister, who was then sentenced to six years in prison. (Source: The Hindu 2011)

In 2012 an Audit was conducted by the Jamaican government into two major infrastructure projects, one of which was awarded to China Harbour Engineering Company. The Minister for Transport, Works and Housing claimed,

“The report from the forensic auditor has unearthed wanton disregard for the conventions and procedures established by the Government of Jamaica for project implementation, administration and management. These breaches of existing procurement guidelines have drained precious budgetary resources and undermined the very foundation of public institutional integrity” (Source: Caribbean Analysis 2012).

China Habour Engineering Company negotiated with the Cayman Islands Premier to build and run a major port facility. This deal was stopped, when the UK government blew the whistle over the procurement arrangements. Later it was revealed the process had been fast tracked by the Premier, in violation of legal process (Source: CayCompass 2013).

Perhaps Mr Sogavara and his staff should also read some previous coverage given to China Harbour Engineering on this blog:

Prime Minister Manasseh Sogavare on Wednesday met the general manager of a Papua New Guinea-based Chinese company interested in investing in Solomon Islands.

Mr Ma Jianhua, General Manager of China Habour Company (PNG) Limited, enlightened the Prime Minister about his company which he said is a state-owned enterprise specialised in survey and design, marine engineering and construction of roads, bridges and wharfs.

Mr Jianhua told the Prime Minister his company also provides support to its clients to get financial solutions for their infrastructure development needs.

“I first visited the Solomon Islands two years knew the country has a good investment market for my company.

“We pledge to provide quality service and the best returns for our clients,” he added.

“We are open to any genuine investor that wants to help us drive our private sector and I am pleased to know that your company is a reputable company doing business in 80 countries including Papua New Guinea,” Mr Sogavare said.

He added that, “Solomon Islands is in dire need to come out from where we are now in terms of development and we have ourselves to blame for restricting ourselves from other potential investors”.

The Prime Minister said there is investment potential in Solomon Islands for the company and he is encouraged to hear that the company can also help its clients access financial solutions for their infrastructure development needs.

“My challenge right now is ensuring developments in Malaita Province but I’m hearing people saying that investors are afraid of going to Malaita.”

The PNG government should be wary about its new open door policy towards Chinese companies and loans.

Two years ago Chinese state-owned corporation MCC, operator of the controversial Ramu nickel mine in Madang, was exposed as having been labelled corrupt and blacklisted by the World Bank and other international banks.

MCC is clearly not the sort of company you want pumping millions of tons of toxic mine waste into your pristine marine environments. It is a shame Michael Somare did not do a better job of due diligence before jumping into bed with these particular Chinese!

In April we exposed the criminal antecedents of the China Harbour Engineering Company in Bangladesh, Cayman Islands and Jamaica – but in June Powes Parkop gave the company a K300 million contract!

But it appears the rot in China runs much deeper as MCC and CHEC are far from the only Chinese enterprises blacklisted by the World Bank for corruption and other unsavory practices.

The list also includes:

ZHEJIANG ZHEDA INSIGMA GROUP CO. LTD. (INSIGMA GROUP)

ZHEJIANG ZHEDA INSIGMA TECHNOLOGY CO. LTD.

ZHONGKE LIFE SCIENCE & TECHNOLOGY CO., LTD.

HEFEI HIGHWAY & BRIDGE PROJECT CO. LTD

DAQING OILFIELD HIGHWAY & BRIDGE ENGINEERING CO., LTD.

CHINA COMMUNICATIONS CONSTRUCTION COMPANY LIMITED (as the successor or assign to China Road and Bridge Corporation)

CHINA GEO-ENGINEERING CORPORATION

CHINA STATE CONSTRUCTION ENGINEERING CORPORATION

CHINA WUYI CO. LTD

It is not only the World Bank that has bared these companies for fraud and corruption. The companies are also on the blacklists of the Asian Development Bank, European Bank for Reconstruction and Development, and Inter-American Development Bank.

When I penned Are Chinese Soft Loans Always a Bad Thing? for The Interpreter in March there seemed little prospect that my query would have immediate relevance. PNG Treasury officials were adamant that there was a freeze on further loans. Gripped by fiscal rectitude, they were set on paying back an interest-free loan made by the People’s Bank of China in the 1990s, even though no one had asked for it back.

To Treasury’s consternation, during the course of the PNG election campaign Peter O’Neill announced he was negotiating a soft loan with China Exim Bank. It is worth in the region of K6 billion ($2.7 billion), with the potential for up to K10 billion to be drawn upon. It dwarfs the 2006 Soft Loan Facility of $375 million made to the Pacific as a whole.

Pro-opposition blogs have denounced the loan as ‘sinister’ and suggested that Treasury will be bypassed altogether. In the absence of any concrete details of the loan, which is currently being finalised, PNG’s lively blogosphere has filled the vacuum. A thoughtful anonymous post on Keith Jackson’s blog rightly points to the effect the loan will have on the ever appreciating exchange rate, which is set to face enormous upward pressure when Exxon Mobil’s LNG project comes online.

Perhaps the greatest concern is that the loan appears to be fragmenting (even before it is agreed) into a set of smaller projects around diverse actors and local political interests, as noted in The Garamut.

Initially, the loan was specifically for a much-needed upgrade to the Highlands Highway. Projects now mentioned in association with the loan include a hydropower scheme, the infrastructure needs of Port Moresby and Lae, and even the upgrading of PNG’s state-owned enterprises. One minister’s ‘shopping list’ is said to be more than double the value of the loan facility.

To an extent, such balkanisation is a result of the Alotau Accord, an agreement reached between political groupings in the provincial capital of Milne Bay province that led to the formation of the O’Neill-Dion Government. Ironically, Milne Bay appears to be one part of Papua New Guinea that will not benefit from expenditure on ‘high priority infrastructure projects‘.

It will be interesting to see which dance partners appear on the Chinese side of the ballroom. Chinese aid officials privately concede that Chinese construction companies largely drive China Exim’s concessional loans, the majority of which go towards infrastructure development.

In a recent Wall St Journal article, which curiously described PNG as ‘an impoverished southeast Asian nation’, Peter O’Neill maintained that the Chinese partners for the new loan would be ‘Fortune 500 companies’. Success in accessing the 2006 Soft Loan facility came down to the political clout of Chinese contractors within China, and the political savvy of their PNG partners in lobbying the PNG legislature. The outlier was the choice of contractor for the $235 million PMIZ project, which involves the construction of a free trade zone and up to ten tuna canneries in Madang. The project is currently stalled in the courts. The Chinese contractor, Shenyang International Economic and Technical Cooperation Company, is a city-level state-owned enterprise (SOE) with no established presence in PNG. With less than 100 employees in China, it’s unlikely to appear in the Fortune 500 anytime soon.

The choice of an inexperienced company for a complex project seems odd, but is in line with the practice of concessional loans being used to provide selected SOEs with overseas experience. With the majority of the top 20 Chinese companies in PNG listing their business as ‘construction’ (linked article is in Chinese), it’s to be hoped that China Exim Bank calls on companies with experience in PNG, or similar countries. Papua New Guinea is no place for training wheels.

* Graeme Smith is a Postdoctoral Fellow at the China Studies Centre, University of Sydney and a Visiting Fellow with the State, Society and Governance Program in Melanesia Program, AN

Prime Minister Peter O’Neill claims he is trying to improve the living standards of ordinary people and ensure they have access to basic services, but this is far from the truth.

Confidential government documents show that, just like his predecessor Michael Somare, O’Neill is not only being bullied by the Chinese to give them preferential access to PNG resources – he is using PNG tax payers money to subsidize the Chinese.

The O’Neill government says the controversial Pacific Marine Industrial Zone in Madang province is one of its priorities to boost the national economy but has not revealed:

The USD79 million dollars it is borrowing from the Chinese to fund the project will be plowed straight back into the Chinese company building the PMIZ rather than being invested in PNG companies and people

China Shenyang International Corp has been contracted by the PNG government to design, build and supply equipment and materials for the PMIZ rather than the PNG government using local businesses

The total PNG government contract with China Shenyang International is for USD 95 million, which means PNG taxpayers will be directly subsidizing this Chinese company to the tune of USD16 million.

All the goods, technologies and services purchased for PMIZ will come from China – not PNG suppliers

China Shenyang International will operate completely tax free in PNG, exempt from any “rate, charge, duty or imposition of any kind under PNG laws” – a concession the PNG government NEVER gives to PNG businesses

The PNG government has also granted Chinese officials full and unlimited rights to examine and supervise the project funding including granting a long-term multiple entry visa to the Chinese loan officer.

The government has also “irrevocably waived” any sovereign immunity for PNG in any dispute over the loan, AND agreed while PNG may not assign or transfer any of its rights or obligations China has full rights to assign or transfer any of its rights and obligations!

Finally the PNG government has agreed the loan contract, although signed in PNG and to be effected in PNG will be “governed by and construed in accordance with the laws of China” – bet you don’t even know what those laws are do you Mr O’Neill!

In one of the coming decades’ most important developments, tensions between the United States and China have begun to escalate on a whole host of new fronts. Prospects for the presidency have soared to new heights of monetary nationalism, the Obama administration has announced plans to station 2,500 marines in the Pacific, and Chinese diplomats have turned up the heat on American allies in the South China Sea.

As in all great rivalries, China and America both have proxies whom they support, provided the junior partners act in their interest. One such proxy nation is Papua New Guinea, the resource-rich Pacific nation whose domestic political instability has made it a surprising focus of American and Chinese geopolitical maneuvering.

Of potential flashpoints for conflict in the Pacific arena, Papua New Guinea is generally less studied than its regional counterparts, such as the Philippines and Vietnam. New Guinean history is primarily viewed through the lens of Jared Diamond’s Guns, Germs, and Steel. This ignores the island’s long history on the world stage. A battleground between Allied and Japanese forces in World War II, the country was restored to Australian ownership at the campaign’s end. Sir Michael Somare, a perennial leader of Papua New Guinea, finally won his people independence in 1975 – but ever since, the Melanesian state has been fraught with conflict.

Despite recent military developments, Papua New Guinea is ostensibly in the throes of a petty constitutional crisis. Sir Michael Somare, in his fourth nonconsecutive role as prime minister until this past August, has returned from his convalescence in Singapore claiming to be the country’s rightful legislative chief. The person serving in that position now, Peter O’Neill, toppled the placeholder Somare who appointed in August and was voted by the parliament as the rightful prime minister. The small nation’s supreme court ruled that because Somare left for heart surgery with full intention to reclaim his seat, he is legally entitled to the role of prime minister. By and large, parliament disagrees – and Papua New Guinean ministers strongly support the new prime minister, Peter O’Neill. This vehement disagreement at the highest levels of government led to a mutiny attempt to remove O’Neill and restore Somare.

The rebellion was successful at first. Hired by Michael Somare, the Indonesian colonel Yaura Sasa and his troops seized control of the military barracks in Port Moresby, the capital, and captured Brigadier-General Francis Agwi, the Commander of the PNG Defense Force. After days of escalation, soldiers surrendered their weapons on January 30. They promised to stand down instead of facing prison time. The colonel was jailed but later released on the grounds that he was merely operating under government commands. The government of Sir Michael Somare, which the Supreme Court deemed legitimate, had, after all, executed the order.

A surface-level reading of this scenario focuses on an internal struggle within government leadership over political control and resources, a common occurrence in developing nations. However, a broader and perhaps more accurate view of the situation requires putting it in terms of American and Chinese interests. Papua New Guinea is an attractive destination for investors due to its untapped 22.6 trillion cubic feet in natural gas, not to mention its copper and gold wealth. Exxon Mobil is working on a $15.7 billion liquefied natural gas project that should due to be completed in 2014. The China Metallurgical Group Corporation (MCC) is developing China’s largest overseas mining investment, a $1.6 billion attempt to exploit 140 million tons of nickel.

As is typical of situations in which foreign investment is involved, outside nations require government compliance in forging ahead with their designs. China had an easy time injecting itself in the nation when Somare was in charge. The once and perhaps future prime minister supported Chinese interests in his Environment Act, which amended the law so that landowners could no longer contest damaging activities on their land – a move that authorized the MCC’s plan to dump toxic mine waste into the Bismarck Sea. This provision was repealed by the O’Neill government, which claimed to look out for both the environment and the rights of its constituents.

The acts of Peter O’Neill are not necessarily so principled. While Somare instituted a “look north” policy during his tenure, O’Neill has increasingly conducted his primary business with Julia Gillard and her Labor government in Australia. Sir Michael Somare saw China as the country to emulate. He invited members of the People’s Liberation Army to train the Papua New Guinea Defense Force. He also established a program for PNG officers to undertake military training in the People’s Republic of China for up to three years. Historically, since Papua New Guinean independence, training aid had been under the aegis of Australia, New Zealand, and the United States. In the past couple of months, O’Neill has attempted to revert to those days, inviting Australian troops back to the island.

Last spring, Secretary of State Hillary Clinton admonished Somare for getting too close to his neighbor to the north. She warned of a “resource curse,” insinuating that he would fail as leader if he lacked commitment to good governance, transparency, and accountability. Clinton has taken a Kissinger-esque stand when it comes to the nation, urging the U.S. Congressional Foreign Relations Committee, “Let’s put aside the moral, humanitarian, do-good side of what we believe in and let’s just talk straight, realpolitik.” She bluntly claimed that China is trying to “come in under us” regarding “Papua New Guinea’s huge energy find.” As if there was any doubt, she strongly asserted, “We are in a competition with China.”

U.S. diplomats aren’t the only ones to recognize the recent skirmish’s implications on the Chinese-American divide. Resentful PNG citizens have circulated text messages claiming, “The Somare regime existed through Asian mafia’s funding.” Papua New Guinea has experienced the rapid rise in Chinese immigrants to which the entire Pacific region has become accustomed. Nativist anti-Chinese riots ulcerated in 2009; accordingly, most citizens strongly prefer America to China. However, as America’s unipolar moment fades into a period of increased Chinese assertiveness, it is not hard to imagine a future of Chinese dominance in Papua New Guinea.

Pacific Islanders might not like their new neighbors, but many established politicians have a tendency to get along with Beijing just fine. As China’s aggression continues, its influence is unlikely to go anywhere but up.

FORMER PNG Customs Commissioner Gary Juffa is seeking legal advice from his lawyers to stop a rice project promoted by Eliana Tjandra from the Papindo Group of companies, a naturalised citizen.

Prime Minister Peter O’Neill, when interviewed yesterday, said any investments in the country must follow strict procedures and refused to entertain the project.

Mr Juffa said Ms Tjandra has brought in investors from Indonesia and China with the intention to secure vast tracts of land in Central Province to cultivate and sell rice for commercial purposes in the country.

The former PNG Customs boss said Ms Tjandra is currently facing charges of fraud for conspiring with Lands Department officers to illegally obtain titles to parcels of land in Port Moresby and she is out on bail.

Mr Juffa, who is a clan leader from Northern Province, has come out strongly against the project and urged leaders to seek the interests of the people rather then allow what he called “absurd projects” that demeaned and deprived people from exercising their right to conduct business in their own country.

He is adamant that his clan and others in the province would be affected by this project to the extent that they may be unable in the future to engage in the growing and selling of rice.

“Rice has slowly become a popular crop in Oro Province with substantial volumes being grown by villagers who sometimes sell their rice at markets, shops and even to the local schools and hospital,” he said.

Mr Juffa claimed that the project was hostile to the interests of his Soriane clan of more than 5000 people and indeed all Papua New Guineans who are involved in the growing of rice.

“This absurd project seeks to ban the growing and selling of rice by any entity, individual or organisation in the country. It is a project that seeks to marginalise all citizens and prevent them from benefitting from the growing and selling of rice by Papua New Guineans in their own land,” he said.

“While creating a monopoly for a foreign entity…what type of leaders would do this to their own people to demean them and diminish their opportunities whether present or future?”

Mr Juffa said the Government stop the project and stand by the interests of the people rather then facilitate the project. He said authorities must convene necessary discussions to develop policies to develop a rice industry for Papua New Guineans.

“Leaders are elected to serve, promote and protect the interests of their people, those who elected them into parliament for that purpose,” he said. “Having studied the documents and details regarding this project, I am concerned that this effort is harsh and oppressive towards our citizens becoming self sufficient in this regards – growing and selling of rice.”

Mr Juffa said our people who will be affected do not know of this sinister project.